November 23, 2017

“But... hourly billing is easy!”

One advantage of hourly billing is that it’s easy to understand conceptually.

The client tells you to do something, you punch in, you work, you punch out, you send an invoice, and the client (hopefully) pays it.

Easy peasey.

Here’s a question I received recently that illustrates the “but hourly billing is easy” viewpoint:

As a freelance creative director I often charge by the hour. Not because I think it’s the best way but because it’s an easy way. My hourly rate is X and I tell clients it’ll take between Y to Z number of hours. I’m curious what you’d recommend? Strictly project rates?

Here’s my reply:

For custom project work, I recommend value-based pricing. But I recommend that professionals package their expertise in a variety of ways so they can offer something other than custom projects.

The approach you’re taking can be made work reasonably well if you’re good at estimating. The downside is that it places an artificial ceiling on your annual revenue.

At least for people I talk to in the US, this “hourly ceiling” is usually around $140,000 per year gross revenue.

$140k is certainly not a bad income, but after you subtract taxes, health insurance, and other self-employment expenses, it starts to feel like taking a day job might be a smarter financial move. 

Yes, hourly billing is easy.

So is falling down the stairs.

Easy doesn’t equal smart.